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Bankers foster the idea that strategic default on a primary residence is immoral. Bankers want borrowers to continue to repay loans even when it is not in the borrower's best financial interest to do so. I and many others have argued borrowers have a greater moral duty to do what's in the best financial interest of their family. Obviously, bankers disagree.

In reality, this isn't a moral issue at all. It's all about money. Bankers want to make money, and making moral arguments is a stigma of convenience. If they were on the other side of the transaction, they would make the opposite point. I know this because they were on the opposite side recently, and they did make the opposite choice. The mortgage banker's association defaulted on the loan on their own headquarters! So much for the greater moral duty to keep their word and their written agreements.

Living By Default

We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.

It is exactly the same as lighting money on fire. It's gone. It isn't coming back. For underwater borrowers who are paying more each month than a comparable rental, they are losing the difference each month from the family's economic vitality. And for what?

These people have no hope of ever making a return on their investment in their homes. So for many of them the rational solution would be a “strategic default”—walking away from the mortgage and letting the bank take the house. Yet the vast majority of underwater borrowers keep faithfully paying their mortgages; studies suggest that perhaps only a quarter of all foreclosures are strategic. Given how much housing prices have fallen, the question is why more people aren’t just walking away.

Part of the answer is practical. Defaulting (even in so-called non-recourse states) is still a lot of trouble, and to most people it’s scary.

In addition, homeowners are slow to recognize how much the value of their homes has dropped, and have inflated expectations of how much it will rise in the future.

Hope springs eternal. I suspect this is most people, particularly here in California. Houses have fallen in value much more than most homeowners realize or are willing to admit, and of the few who realize it, many of them also believe prices will come back quickly once the market bottoms. The market bottom is proving elusive, and appreciation will be much more tepid than loan owners expect once the bottom is in place.

The biggest hurdle, though, is social: while companies get called “very smart” for restructuring their contracts, there’s a real stigma attached to defaulting on your mortgage. According to one study, eighty-one per cent of Americans think it’s immoral not to pay your mortgage when you can, and the idea of default is shaped by what Brent White, a law professor at the University of Arizona, calls a discourse of “shame, guilt, and fear.” When the housing bubble burst, the banking industry was terrified by the possibility that homeowners might walk away en masse, since that would have stuck lenders with large losses and a huge number of marked-down homes. So strategic default was portrayed as the act of dishonorable deadbeats. David Walker, of the Peterson Foundation, waxed nostalgic about debtors’ prisons, and John Courson, the head of the Mortgage Bankers Association, argued that defaulters were sending the wrong message “to their family and their kids and their friends.”

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

This is more than just a public relations problem for bankers. This strikes to the heart of the lie they are perpetrating on the American people. When bankers say it is immoral to default, they don't really believe it. Their actions speak much louder than their words ever will.

When it comes to debt, then, the corporate attitude is do as I say, not as I do. And, while homeowners are cautioned to think of more than the bottom line, banks, naturally, have done business in coldly rational terms. They could have helped keep people in their homes by writing down mortgages (the equivalent of the restructuring that American Airlines’ debt holders will now be confronting). And there are plenty of useful ideas out there for how banks could do this without taxpayer subsidies and without rewarding the irresponsible. For instance, Eric Posner and Luigi Zingales, of the University of Chicago, suggest that, in exchange for writing down mortgages in hard-hit areas, lenders would take an ownership stake in a house, getting a percentage of the capital gain when it was eventually sold. Lenders, though, have avoided such schemes and haven’t done mortgage modifications on any meaningful scale. It’s their right to act in their own interest, but it makes it awfully hard to take seriously complaints about homeowners’ lack of social responsibility.

Of course, many borrowers made bad decisions and acted irresponsibly. But so did lenders—by handing out too much money and not requiring sensible down payments. So far, banks have been partially insulated from the consequences of those bad decisions, because Americans have been so obliging about paying off overinflated mortgages. Strategic defaults would help distribute the pain more evenly and, if they became more common, would force lenders to be more responsible in the future. It’s also possible that a wave of strategic defaults—a De-Occupy Your House movement—would get banks to take mortgage modification more seriously, which would be all for the better. The truth is that banks have been relying on homeowners to do the right thing. It might be time for homeowners to do the smart thing instead.

Underwater borrowers who are paying more each month than a comparable rental have a choice to make. Either accept the arguments of bankers, keep paying the mortgage, and flush the money down the toilet; or they can do what's best for their family and tell the bankers to shove that mortgage up their a$$.

A charming 1 Bedroom, 1.5 Bathroom Townhome in Irvine. On the second floor of this home you will find the 1.5 bath, living room, kitchen and den/office. On the third floor you will find the large master bedroom with wood like flooring, spacious master bathroom and walk in closet. This home features a balcony on the second floor and an attached 1 car garage.

Borrowing costs are likely to increase in 2012 for a variety of loans. The lower conforming limit will push many borrowers to either the FHA or the jumbo market where borrowing costs are higher. The FHA may also raise its borrowing costs again to cover the inevitable losses from the ongoing decline in home prices. Further, the new rules on conforming mortgages will push up costs on loans which do not conform.

Cameron Findlay is the chief economist at LendingTree.com, working out of the Charlotte firm’s Irvine office. responsible for risk management, hedge strategy and analytics. He is the firm’s principal representative in Washington, D.C., involved in mortgage industry reform. We asked him for his take on the mortgage market these days …

Us: What’s going on with the current mortgage market?

Cameron: There is a battle ensuing between Fannie Mae and Freddie Mac vs. the Federal Housing Administration in terms of market share.

Just take loan limits as an example. For Fannie and Freddie loans, the local loan limit is set at $625,500. For FHA loans, those limits are actually $729,750.

The translation for high-cost regions like Orange County, the government is committed to reducing the number of Fannie and Freddie loans, and the volume we expect will be diverted to FHA as consumers look to secure higher loan limit loans. In short, there is confusion for both lenders and borrowers which inhibits the loan origination process and increases cost.

The reduction in Fannie and Freddie loan limits from $729,750 to $625,500 on Oct. 1 was particularly significant because 28 percent of the homes impacted nationally are located right here in California.

I don't believe this is competition or confusion. The government wants to pull back from its subsidies to stop from losing even more money, by leaving the option open to use FHA financing, they can provide some support for the more expensive homes, but at a higher borrowing cost. This should encourage private lending in the jumbo loan market to enter this space.

FHA loans with their insurance premium of 1.15% is more expensive than a competing jumbo loan. Of course, the jumbo loan will require 20% down and the FHA loan only requires 3.5% down, so many will chose FHA loans anyway because they won't have another choice.

Whatever choice the borrower makes, it will carry a higher cost which will reduce the size of the available mortgage. Smaller mortgages make for lower prices.

Us: What’s the outlook for mortgages in 2012?

Cameron: Qualification will continue to play a central role in the first half of the year when regulators are expected to release the definition of a “Qualified Residential Mortgage.”

The cost of borrowing may rise as much as 1.25 percent for those who do not qualify for a QRM. Clearly this would be detrimental to existing home prices and reduce the market’s ability to clear existing inventory.

That is only half true. It is detrimental to existing home prices, but it doesn't reduce the market's ability to clear the inventory. Lower prices will do that.

Being an election year, there may not be much new policy agreed to. We expect policies already in place to be central to election results. This may drive government intervention to further stimulate improvement or at least stability in housing.

I agree that legislation in an election year is not likely, particularly since the two parties can't agree on much. But given the perceived need in Washington to support home prices, something may emerge from Washington which further distorts the market.

Us: UCLA forecast that these historically low rates will last two more years? Do you agree? How long do you think they’ll last?

Cameron: Mortgage rates have bottomed out despite additional monetary easing from the Federal Reserve. Any additional efforts by the Fed to stimulate mortgage rates lower will have only a marginal improvement on increasing the number of borrowers who are eligible for a loan or refinance.

We expect low rates to prevail for less than 24 months, by which time it is expected regulatory influence will begin to push rates higher. The increased transparency any private label investment in mortgages would require implicates a risk premium that will be passed onto borrowers.

That's a reasonable assessment. Over the next 18 to 24 months, interest rates will likely remain low. Just when it looks like prices have found a bottom, higher interest rates will reduce affordability and stop any meaningful appreciation.

People say that mortgages were too easy to get in the boom, and now they’re too hard. Has the pendulum swung too far?

The pendulum for qualification was previously built on the concept of creative and unstable loan. Existing loan types today are primarily Fannie, Freddie or FHA-qualified loan types, meaning lenders are very cautious about qualifying a borrower.

For sustainable, long-term growth, you need a solid foundation. Today, the market, in collaboration with government oversight, is still clearing the rubble and defining that foundation.

In other words, no, the standards are not too tight.

Standards are finally reasonable again. Only if lenders get stupid, take on excessive risk, or innovate again will we see stupid loan standards and possibly another bubble.

The concern we have expressed is the constant market shock of changing rules will result in adverse market condition premiums that will be passed onto borrowers in the form of higher rates.

Us: How long will this tight-money climate last?

Cameron: The “tight-money climate” will remain in place until private label investment deems mortgages are a risk-worthy investment, which cannot happen as long as the government is buying all of the supply at a market premium to synthetically suppress mortgage rates.

Exactly. The entire mortgage market today is government backed. Private lenders are unwilling to loan at the interest rates backed by government loan guarantees, so we have a completely artificial government-backed interest rate sustaining current pricing.

The government is fully aware that consumption (which is about 70 percent of GDP) is driven by confidence, and without support for housing initiatives, this will risk reducing growth targets not only for mortgages but the broader economy.

Clearly, underlying this issue is the labor market. Jobs creation will be central to any improvement. Focus will need to be on both the cyclical unemployment rate and the structural unemployment concerns that takes into account the skills loss that results in lower-paying jobs and reduced income.

Job creation and household formation are essential to the recovery of the housing market. We need qualified borrowers taking on plain-vanilla debt to absorb the homes being vacated by toxic mortgage holders.

Us: Who’s getting these historically low interest rates, the rich, or cash-strapped homeowners who need them the most?

Cameron: Qualification has mainly been restricted by loan to value or FICO score constraints vs. a focus on debt to income, or higher-income households. Access to credit is being restricted by the loss of equity and home devaluation over the past five years.

The recent Home Affordable Refinance Program 2.0 program was designed specifically to focus on high loan-to-value borrowers. Although it is expected to help, it will still only assist less than 10 percent of the market.

He didn't answer the question about who benefits, so I will. The primary beneficiaries of the low interest rates are prudent borrowers who were able to refinance, and new buyers purchasing in areas like Las Vegas where prices are well below rental parity.

The people who have not benefited from the low rates are the buyers who paid much more than rental parity to take advantage of the low rates. Those knife catchers have watched the values continue to decline despite the bargain rate they got.

The other group that has not benefited are the deeply underwater who did not strategically default because they got a loan modification or took advantage of the new GSE program allowing deeply underwater borrowers to refinance. This group believes they've been helped, but they have merely extended their pain.

The bottom line is that increased borrowing cost is going to continue to put pressure on home prices. With the additional inventory coming next year from B of A and other lenders, I expect prices to continue to decline.

The owner of today’s featured property believes his property has appreciated 35% since early 2008 when he bought. The rest of the market has declined about 20% since then. Is it reasonable to think this house went the other way?

Some say the rich get richer, but only if a greater fool comes along to pay a lot more for an already overpriced house.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 44 BLUE HERON Irvine, CA 92603

Asking Price ……. $13,900,000

Beds: 5

Baths: 8

Sq. Ft.: 11441

$1215/SF

Property Type: Residential, Single Family

Style: 3+ Levels, Farm House, Mediterranean

View: Canyon, City Lights, City, Golf Course, Mountain, Panoramic

Year Built: 2006

Community: Turtle Rock

County: Orange

MLS#: U11003550

Source: CRMLS

On Redfin: 127 days

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This Shady Canyon custom home resides upon one of the community s most desirable elevated lots and captures breathtaking panoramas of the canyon, golf course, and mountains in the distance. Its preferred siting affords wonderful privacy throughout the residence and its grounds. Extraordinary design and materials have been brought together, creating the substance and distinction that are the hallmark of this home. Throughout the spacious interiors, the carefully selected finishes contribute to a feeling of quality, warmth and comfort. Impressive, yet eminently livable, no other home offers such a unique combination of setting, space, views and privacy. The house is complemented by nearly an acre of amazing gardens, terraces, multiple outdoor living areas, and an outdoor kitchen facilities ideal for entertaining or enjoying the exceptional views and tranquil setting.

Prices across most of Orange County continue to decline. The OC Register reports prices have hit a near three-year low. My own analysis of the MLS data shows Irvine teetering on the brink of taking out the 2009 low and setting a new eight-year record low.

Orange County’s home pricing got hit with autmun’s chill, as builders had a record-worst sales month.

DataQuick reported this morning that 2,297 residence sold in November. That is up 1.8% from a year ago. That gain came at a price. Literally.

Median selling price was $400,000 — the lowest since April 2009 and off 8.0% in a year. Orange County’s median first hit $400,000 in May 2003.

Anyone who has been reading my writing is not surprised by these numbers. Ever since the spring rally fizzled out in May, I have been predicting a big drop in the fall and winter. When December's numbers are posted, they should be even worse.

By the slice:

1,495 single-family residences sold last month. That is up 6% from a year ago.

664 condos sold last month. That is up 8% from a year ago.

Increasing sales and decreasing prices means the decline is accelerating. The sales volumes are still well below historic norms, but the fact that volume is increasing is a good sign for those waiting for lender capitulation as a sign of a market bottom.

Builders had 138 new-home sales last month. That is down 42% from a year ago. It was the slowest November for developers in DataQuick records that date to 1988.

Current price is 11.1% below 2010′s peak (May and July) of $450,000; 2% below end of 2010′s median ($410,000.)

The most recent median is 8% above the cyclical low hit in January 2009 at $370,000 — so the median has recouped 11% of the $275,000 price drop from the peak.

Compared to cyclical low, single-family house median is 10% higher ($418,250 in January 2009); condo median is 1% higher ($252,000 in March 2009.) Builder prices for new homes are 35% above June 2009′s $424,000 bottom.

See the follow up post below reminding everyone of how the low of the median in 2009 was an illusion created by the changing mix of houses sold.

The median selling price of a single-family home is 37% less than their peak pricing (June ’07). Condos sell 46% below their peak in March 2006. Builder prices for new homes are 34% below their February ’05 top.

Single-family homes were 80% more expensive than condos in this period vs. 71% a year ago. From 1988-2010, the average house/condo gap was 57%.

Builder’s new homes sales were 6% of all residences sold in the period vs. 10% a year ago. From 1988-2010, builders did 14% of the Orange County homeselling.

These are dismal numbers. There is no way the bulls can convincingly spin this. Prices will fall through January or February, then we will see the start of the season uptick for next year's spring rally. Expect the usual suspects to call the bottom.

It seems like there may still me a few people who do not understand that the median low is not necessarily and most often not the absolute low of any statistic. The 2009 Orange County median low for residential home prices was not the low for home prices as can be evidenced by anyone who has been actively been watching home prices for the last few years. Anyone that is, who is not a moron.

From Wikipedia: In probability theory and statistics, a median is described as the numerical value separating the higher half of a sample, a population, or a probability distribution, from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. If there is an even number of observations, then there is no single middle value; the median is then usually defined to be the mean of the two middle values.

Here are two lists which provide examples of median prices using a sample of ten prices each:

Sale Prices

Sale Prices

$200,000

$200,000

$200,000

$250,000

$225,000

$300,000

$225,000

$400,000

$250,000

$500,000

$250,000

$600,000

$500,000

$700,000

$1,000,000

$800,000

$1,500,000

$900,000

$2,000,000

$1,000,000

The median of the first list is $250,000 while the mean is $635,000.

The median of the second list is $550,000, more than the median of the first list, while the mean is less than the mean of the first; only $465,000.

Although they show opposite results, neither the median nor the mean are flawed, but both are limited by their definition and the data set applied.

The Orange County Median Low in 2009 was not the low for home prices and anybody who has been watching home prices for the last few years can attest to the same. The Orange County median reached a low in 2009 because of the mix of homes being sold. 2009 had an unusually large percentage of distressed sales of lower end homes purchased in 2005/2006 or refied in 2005/2006 by subprime borrowers with 2/1 and 3/1 Option Arm mortgages. The mortgages recast in 2006 to 2008 and these subprime borrowers had little to no reserves with which to make their larger recast payment, and the resulting distressed sales occurred relatively quickly compared to present default times. Of course, none of this is news to anyone who has been paying attention or is not denying the facts.

After 2009, the mix of homes being sold changed with 3/1, 5/1, and 7/1 Option Arm mortgages recasting on Alt-A and prime borrowers with more reserves and larger incomes from which to delay a distressed sale on more expensive homes. This is most easily evidenced by the longer and longer times to foreclosure from default initialization, but Coto Housing Blog readers can probably deduce this from their own observation.

Home prices did not rise as is claimed by the delusional and the logically challenged, (read moron), but rather the rise in the median price reflected a greater percentage of more expensive homes sold. A trend in any price or metric cannot be accurately determined by observing only one statistic to the exclusion of others.

2003 Rollback

The owners of today's featured property paid the current asking price over eight years ago. Eight years: no appreciation.

Apparently, they were not paying down their mortgage because it is also listed as a short sale.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 8 KANSAS Irvine, CA 92606

Asking Price ……. $639,000

Beds: 5

Baths: 3

Sq. Ft.: 2200

$290/SF

Property Type: Residential, Single Family

Style: Two Level, Contemporary

Year Built: 1999

Community: Walnut

County: Orange

MLS#: P804843

Source: CRMLS

Status: Active

On Redfin: 19 days

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One of the popular Plan 3 home situated in a gated community of Harvard Square. One br. one full bath dn stairs. 2.5 Car garage. Property comes with additional side yard & beautiful landscaping. Pergo wood floor, Oak cabinets, plantation wood shutters, Berber carpet and tiles. Close to FW 5 & 261. Short sale.

The loan limit on FHA loans is now $729,750. The venerable FHA which was founded to provide loans for low to middle income Americans is now being used to subsidize the mortgages and the house prices of high wage earners in places like Irvine.

The government should get out of the housing market. Even the government knows this, but when removing its support causes house prices to weaken, so does the resolve of those in government to get out of the housing market.

President Obama signed into law a government spending bill Friday morning effectively reinstalling higher conforming loan limits for the Federal Housing Administration through the end of 2013. The House passed the minibus spending bill 298-121 Thursday afternoon, and the Senate approved it 70-30 Thursday night. Effective Friday, FHA can insure loans up to $729,750 from $625,500 in the most expensive neighborhoods. In 2008, Congress elevated the limits for the FHA, Fannie Mae and Freddie Mac, but expired Oct. 1. The Senate approved an amendment to the bill earlier in the month that would have reinstalled the limits for Fannie and Freddie as well. But a joint appropriations committee cut the government-sponsored enterprises out, leaving the FHA in.

It can be argued this is an interim step toward getting the government out. The costs on FHA loans are higher, so it will provide some additional demand, but only by high wage earners who can still support a $729,750 loan after paying the onerous FHA loan premium. Private money will still be needed to fill the gap, but as I demonstrated in Lower conforming limit causes 84% decline in loan volume, the gap is currently a chasm.

By signing the bill, the Obama administration back-tracked somewhat from a white paper put out in February. The paper put forth three options for the housing finance system, precluded by the expiration of the higher conforming loan limits in order to begin ushering private capital back to the market. FHA Acting Commissioner Carole Galante warned senators Thursday that the government should be looking to shrink the FHA market share. “We maintain that it is appropriate to take a step back on the loan limits,” Galante said.

It's appropriate to keep house prices inflated with government supports? It's appropriate to have the government assume the losses that should accrue to the banks?

Rep. John Campbell, R-Calif., made the case on the House floor Thursday to reinstall the limits for Fannie and Freddie as well, citing concerns that the housing market is not healthy enough to be taken off the government lifeline. “Even now, private lenders remain incredibly risk-averse, hesitating to provide long-term, fixed-rate mortgages to the vast majority of the market,” Campbell said. “Until Congress decides how to move forward with broad reform to fix our broken housing finance system, we should not dismantle the few remaining support systems that are preventing the housing industry from collapsing further.”

I first reported congress passed this legislation last month. In that post, I made the following observation: “California Republicans should hide their faces in shame. This is appalling. These Republicans call for reducing the footprint of government and simultaneously vote to keep the house prices inflated in their districts with more government largess.” John Campbell is not a conservative, or has the term conservative been redefined to include maximizing government handouts for high wage earners and rich people? John Campbell is a disgrace to conservatives and to the Republican party.

Sen. Bob Corker, R-Tenn., shook his head Thursday, clearly frustrated at the decision his colleagues made. “The white paper and a bill are two very different things,” Corker said. “I am absolutely so discouraged at Congress in lacking the courage to deal with this issue that we all know needs to be dealt with.” Write to Jon Prior. Follow him on Twitter @JonAPrior.

Bob Corker is my new hero. Thank you for telling it like it is.

Should you or shouldn't you?

On principle, I wouldn't want to use an FHA loan above $417,000. In reality, I might.

Even now, I take advantage of government-backed loans to buy properties being rented to government subsidized renters. My moral aversion to government intervention aside, if that is the only game in town, I will play it if necessary. And it is necessary to buy a property these days.

In late 2013, I will probably buy a house, hopefully in Irvine. Since I am spending all my money on cashflow properties, I probably won't have 20% to put down on a property. I may use an FHA loan.

I recognize this is one more government prop which when removed will likely result in diminished demand and lower prices, but if I don't have 20% to put down, it may be the only option I have. I know I am not alone in this regard.

At low interest rates, many people who live and rent in Irvine could afford a mortgage greater than $417,000 or even $625,000. Many of those people will use FHA loans over the next two years, and their buying will provide some artificial support to prices.

Sometimes I wonder if the government props will ever be removed. If I wait until they all are, I may not buy a house in my lifetime. Many of these props may never go away. It's not the market I want to operate in, but it is the only housing market we have. If you want to own, you have to deal with it.

Banks dramatically increased their scheduled foreclosure auctions in November 63% over October. They appear serious about clearing out shadow inventory and getting what capital they can out of the loans secured by houses occupied by delinquent mortgage squatters.

Banks set the clock for forced sales of more than 26,000 homes in the state in November, a 63% increase from October. Overall foreclosure notices nationwide fell last month.

By Alejandro Lazo, Los Angeles Times — December 15, 2011

Banks in November scheduled more than 26,000 homes to be sold at California foreclosure auctions, a 63% increase from October and a sign that a surge in discounted, bank-owned properties is on track to hit the market next year.

The uptick in scheduled auctions follows an increase last summer in homes entering the foreclosure process by receiving default notices and was largely driven by Bank of America. It appears that many of those homes are now quickly working their way through the process, said Daren Blomquist, a spokesman for RealtyTrac of Irvine, a data tracker that published the November data.

The increase played out nationally, hitting a nine-month high, even as overall foreclosure notices declined last month. Among the states, California had the biggest month-over-month increase in scheduled auctions, followed by Washington, 56%; Ohio, 53%; New Jersey, 44%; and New York, 38%. “November's numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as [foreclosures] or short sales sometime early next year,” said James Saccacio, co-founder and chief executive of RealtyTrac.

B of A is getting the timing right. If they want to sell these REOs without completely crashing the market, they need them ready for the spring selling season. Expect to see most of these homes hit the market between March and July.

Nationally, overall foreclosure filings on U.S. properties— default notices, scheduled auctions and bank repossessions — totaled 224,394 in November, down 3% from October and off 14% from November 2010. About 1 in 579 homes received a foreclosure filing last month, by RealtyTrac's tally. Celia Chen, a housing economist with Moody's Analytics, said she expected the number of foreclosures on banks' books to rise next year and for the number of discounted foreclosures on the market to remain elevated. That will continue to put pressure on home prices. “The pace of sales will remain very slow, so the share of distressed sales is going to rise most likely through the middle of next year, and this will cause home prices to fall,” Chen said. “Job growth is still weak, and then it is still a bit difficult to get those low rates. Lenders, in general, are still being pretty careful about who they write a mortgage for.”

Yes, banks now move beyond a pulse test, and they actually require a job and verifiable income. Banks will remain what realtors and others consider “tight” indefinitely because they are merely practicing good underwriting techniques — at least for now.

The West's Foreclosure Belt continued to be the hardest hit region in the nation. Nevada posted the highest foreclosure rate in the nation for the 59th month in a row, despite a decline in foreclosure activity because of a new law cracking down on those doing the foreclosing. California had the second-highest rate and Arizona the third in November.

The new law in Nevada is having an impact on the issuance of new NODs. Nevada may not post the highest foreclosure rate in the nation in a month or two, but any such reduction is temporary.

California cities accounted for nine of the 10 metro areas with the highest foreclosure rates. Las Vegas was the only city outside of California in the top 10, coming in at No. 6. Stockton posted the nation's highest foreclosure rate for the second month in a row, followed by Modesto and Fresno. In California, total foreclosure activity was up 15% from October and up 11% from November 2010. The number of homes entering foreclosure continued at an elevated level last month, down just 1% from October and up 12% from November 2010. Notices of trustee sales, or scheduled auctions, jumped 63% month over month and 14% over November 2010. Bank repossessions declined 15% from the previous month and were up 1% from the same month last year. The uptick in California filings was driven by the auction notices. When such a notice is filed at a county recorder's office, a home can be sold within 21 days. alejandro.lazo@latimes.com

The foreclosures of thousands of squatters and the liquidation of REO in California will be proceeding in earnest next year. If their past behavior is any indication, lenders will stop selling so many REO if prices start to accelerate the pace of the declines. However, if BofA is as desperate as they appear to be, they may not care what impact they have on the housing market — they need the capital to survive. This may be the end of the banking cartel.

REO BANK OWNED PROPERTY!! Beautiful condo close to lake! Has 3 bedrooms and 2.5 bathrooms. There is a half bath upstairs and all three bedrooms upstairs. Has an open floor plan with plenty of room. There is carpet through the bedrooms, stairs, and hallway. There is a fireplace in the family room. The backyard is set up great for entertaining. Association has a pool and spa for everyone to enjoy. Don't miss this opportunity to buy a bank owned home!!